Up on the Roof

The dining area of the Dekra three-bedroom penthouse, which sold for $20 million. The home was constructed on top of an existing building on Wellington Road.

Dylan Thomas for The Wall Street Journal

Derek Cunnington gazed out over the low-slung London skyline from atop an eight-story apartment building and liked what he saw.

“When you’re up here, you can see lots of opportunities,” said Mr. Cunnington, owner of U.K. property developer Dekra Developments.

The flat roof of Grove End Gardens, which overlooks the crosswalk on the Beatles’ famous Abbey Road album cover, is a construction site. In 18 months, Dekra will have built six luxury penthouses on top of the 1935 brick building.

Some developers are taking a novel approach to finding new building sites in crowded central London, where period homes are prized: They are adding penthouses on top of existing buildings.

London faces a housing crisis defined by the lack of centrally located homes. Its growing population requires 42,000 new homes built each year for the next 20 years, according to the office of Mayor Boris Johnson. Demand pushed the average London house price up 13.2% in January compared with the same month in 2012, the U.K.’s national statistics agency said. The housing boom is making rooftop construction more feasible.

Overseas buyers are willing to pay a premium for these newly built penthouse properties, which are rare in London, said Camilla Dell, managing partner at Black Brick, a real-estate buying agency for which foreign buyers account for 60% of the business. These buyers prefer to have modern conveniences, such as underground parking, gyms and high-tech security, Ms. Dell said.

Dekra has built about 20 penthouses in London in the past seven years. The Abbey Road development, from planning to finished product, will be nearly four years in the making and cost up to $50 million.

When complete, the building will feature underground parking, elevators that bypass nonpenthouse residents, branded fixtures and iPad-controlled utilities. When buyers arrive for their first night in their new home, they will find a refrigerator and pantry stocked with food from their homeland.

About 20% to 30% of the Dekra project will be completed in a factory, Mr. Cunnington said. This modular building style means major structural aspects of the building are prefabricated, including the steel frame.

After construction in the factory, this exoskeleton will be broken into parts and trucked to the site. A giant industrial elevator will lift the pieces to the top of the building.

Dekra doesn’t use cranes. The firm uses a special machine to knock down brickwork on the roof, as opposed to a jackhammer. There is no scaffolding. This style of work costs more, and takes more time, but is meant to be out of sight, with nuisances kept to a minimum, Mr. Cunnington said.

The developer will also make overall improvements to the building, which he says will benefit existing residents. New elevators will be installed, reception areas will be renovated and a parking garage will be built under the back garden, which will be upgraded.

So far, existing residents of Grove End Gardens haven’t voiced major complaints. “I really didn’t want to trust him. He’s a developer, after all,” said David Burr, who chairs the building’s residents association. “But he has been true to his word.”

Dekra has finished two other penthouses in St. John’s Wood. They include a three-bedroom with a wraparound balcony built on an eight-story property—sold to a British buyer for $20 million—and a two-bedroom finished last year on a seven-story building that is now listed for $4.3 million.

First Penthouse, another London developer building new penthouses on existing properties, takes a different approach to construction. The company finishes 90% of the penthouse in a factory before loading it on the back of a truck, and lifting it to a rooftop with a crane, says Hakan Olsson, the company’s owner. First Penthouse is set to finish a project in the trendy Shoreditch neighborhood at the end of April. After that, a bigger penthouse is scheduled to be built near the Thames in the Royal Borough of Kensington and Chelsea, to be listed at more than $6.6 million.

Aside from costs and engineering, rooftop projects are limited by planning permissions. In the City of Westminster—where St. John’s Wood is located—about 80% of buildings fall within a conservation area, meaning “they generally won’t get penthouses built on them,” said Rosemarie MacQueen, strategic director for the built environment at Westminster. Planning laws protect access to sunlight in homes, as well as privacy from new windows peering into older ones, known as overlooking.

Another hurdle: Some buyers might be turned off by the melding of old and new construction. Ms. Dell at Black Brick said the first things potential buyers see when they go to view a penthouse is the older building under it. “Yes, people will pay premium for new-builds. Yes, they’ll pay premium for a penthouse. But because the penthouse is new doesn’t mean they’ll like the rest being old,” Ms. Dell said.